In reinsurance arbitrations, once the arbitration panel issues its final award its job is over. That’s what the doctrine of functus officio means. But there are exceptions to the functus officio rule (see our Blog from November 2018). Additionally, what happens when a panel retains jurisdiction after issuing the final award? In a recent case, the issue of retention of jurisdiction after the final award was issued clashed with a new dispute between the parties.
In Chicago Insurance Co. v. General Reinsurance Corp., 18-CV-10450 (JPO), 2019 U.S. Dist. LEXIS 182764 (S.D.N.Y. Oct. 22, 2019), the parties arbitrated over a billing on a settlement of asbestos-related losses submitted by the cedent and disputed by the reinsurers. The arbitration panel issued a final award on the billing, but specifically retained jurisdiction to resolve any dispute arising out of the final award.
Several months after the final award, the cedent submitted a new billing, which stated that it was based on the protocols set forth in the final award. The reinsurers rejected the new billing and alerted the original arbitration panel of the dispute. The umpire of that original panel wrote the parties confirming that the panel had retained jurisdiction to resolve any dispute arising out of the final award and that the new dispute over the current billing clearly arose out of that final award. That decision was made by the umpire and the reinsurer’s arbitrator, but not the cedent’s arbitrator, who stated that he would not be participating because of a lack of jurisdiction to do so.
The cedent commenced a new arbitration to resolve the dispute over the new billing. The reinsurers declined to participate. The cedent filed a motion to compel arbitration and stay the original panel from acting and the reinsurers filed a cross-petition to stay the new arbitration and for a declaration that the original arbitration panel had jurisdiction to resolve the new dispute.
In resolving this dispute in favor of the reinsurers, the district court looked to Section 4 of the Federal Arbitration Act. Under Section 4, a party aggrieved by the alleged failure to arbitrate under a written agreement for arbitration may petition the court for an order directing that arbitration proceed in the manner provided for under the agreement. The court noted that the cedent argued that the original panel was functus officio after it issued its final award and that a new arbitration must take place. The court rejected this argument, finding that the functus officio doctrine was largely irrelevant here because the original arbitration panel explicitly retained jurisdiction. Moreover, said the court, the cedent consented to the panel retaining jurisdiction. Because the panel retained jurisdiction, held the court, “the arbitrators’ duties have definitionally not come to an end if the current dispute ‘arises out’ of the Final Award.”
The court considered this arbitrability issue to be a gateway issue that was for the court to determine. The court then found that the new dispute arose out of the final award based on the cedent’s billing based on the protocols set forth in the final award. The court held that based on the cedent’s claim that the new billing flowed from the final award, a majority of the panel determined that the current dispute clearly fell within their reserved jurisdiction. The court determined that the best persons to interpret what was meant by the final award was the majority that authored the award and determined that the panel retained jurisdiction to adjudicate the propriety of the new bill in light of the final award. As the court said, “[t]he panel majority’s determination merits some solicitude.”
The court concluded that given the cedent’s repeated statements that the final bill arose from protocols set forth in the final award coupled with the panel majority’s assertion of jurisdiction, it was clear that the new dispute arose out of the final award and that the original panel retained jurisdiction. Thus, there was no functus officio and the court denied the cedent’s petition to compel and granted the reinsurers’ cross petition to stay arbitration and for declaratory relief.